Analyzing the Impact of Social Capital on Successful Business Clusters

This essay examines the factors contributing to the formation of successful business clusters. It explores the critical role of social capital, defined by the relationships, shared values, and understanding among firms, in fostering innovation and growth within a specific geographic area. The essay discusses how institutions, economic prospects, and cultural factors influence social capital. It also analyzes the impact of industry structure, including resource sharing and strategic alliances, on clustering and competition. The essay highlights the importance of collaboration, workforce mobility, and the challenges of maintaining trust and cooperation. It also explores the advantages and disadvantages of social capital, emphasizing the role of geographical location, resource sharing, and the flow of innovative ideas. The essay concludes by arguing that successful clusters depend on shared values, broad understanding, and cooperation among individuals and firms. This essay provides a comprehensive analysis of the key drivers behind the success of business clusters.

Are successful clusters the result of social capital,
industrial structure, government policy, culture?

Table of Contents
REFERENCES..............................................................................................................................11

MAIN BODY
According to Møller, (2016) social capital is the one of the most important concept on
which business firms are paying due attention to maintain their commanding position in the
industry. Social capital is the one of the important concept that heavily lead to origination of
successful clusters. Social capital basically refers to the link that is between people, values that
they shared and understanding that is developed in past years between the entities in respect to
business. All these things lead to generation of successful clusters in the specific geographic
area. Clusters refers to the successful firms that are innovative in nature or group of the firms in
the specific geographic area and are interconnected to each other in specific area. In many
nations successful clusters emerge because in the geographic area all firms are operating similar
or interrelated business. Such kind of firm’s business interests are interlinked to each other and
due to this reason firms share their values with each other in terms of supporting each other
whenever required. Apart from this, because business interests are common and due to this
reason entrepreneurs understand each other business conditions. Thus, such kind of social capital
lead to growth of the business firms that are operating in specific geographic area. This happened
because entrepreneurs share intellectual property and technology with each other which lead to
consistent growth of business. It can be said that social capital play an important role in
development of successful clusters in the nation.
As per views of Nieminen and et.al., (2015) there are number of factors on which social
capital depends and some of them are institutions, economic prospects, educational attainment
and culture. It is the institutions value system which promote them to cooperate with other firm
and entities that are linked to them like suppliers. Firms cooperate with each other and due to this
reason close relationship build among them which lead to sharing of information and intellectual
capital with other. All these things lead to elevation in growth of the business firms.
Social capital heavily dependent on the institutions. This is because every firm have its
own strength, value system and intellectual property. It must be noted that no company top
managers have entire knowledge about the all aspects of the basis. Knowledge level of
entrepreneurs increased with enhancement in experience. While taking experience entrepreneur
interact a lot with the people that are operating specific institutions. Thus, sharing of values and

knowledge level among the intuitions help entrepreneurs in operating their business in proper
manner and elevating its growth rate at rapid rate. All these things lead to development of
successful clusters in the nation or any state. It can be said that institutions play a vital role in the
formation of the social capital in the nation. Economic prospects are another factor that lead to
development of the social capital. In many nations of the world economic growth takes place at
rapid pace. In such kind of nations large size firms work in close cooperation with the middle
and small size firms. Large size firms and middle size firms work in close cooperation with each
other. Due to this reason in many situations firm takes each other help and also enter in to
strategic alliance. When firms form a strategic alliance then in that case lots of things are shared
by the firms with each other like infrastructure and services etc. All these things help firms in
growing their business at rapid pace. Ultimately, this results in formation of successful clusters in
the nation. Clustering have impact on the competition in three ways which are productivity,
innovation and efficiency. When in any specific geographic area competition increased in terms
of productivity. This is because every firm target is to increase its business at rapid pace. In this
regard business firms focused on productivity and consistently make an attempt to increase
productivity at the workplace. It can be said that social capital have positive impact on the
business firms.
In accordance with the views of de Lange (2016) social capital is one of the most
important and essential aspects which is highly required for the development of clusters.
Moreover, aspect of social capital lays emphasis on mobility of individuals across all the firms.
In other words, social capital aspect enables other firms to attain success through the means of
highly skilled and talented personnel. Moreover, usually small sized business organizations do
not have talented human inventory who are able to perform business activities more effectively
and efficiently. In this, by taking assistance of highly skilled workforce small sized firm would
become able to perform in the best possible way. In this way, through the means of workforce
mobility cluster of successful firms can be created. However, on the critical note, Giudici,
Guerini and Rossi-Lamastra (2017) said that social capital aspect closely influences the
competition which takes place between different business organizations or units. Moreover,
human resources are the main assets of firm which in turn helps it in gaining competitive edge
over others. In this regard, under the case of mobility of individuals specific business unit would
not be in position to attain success over others.

In their investigation, Chen, Haga and Fong (2016) assessed that by developing highly
collaborative work culture group of successful firms can be formed. In the strategic business
environment it is not possible for firm to attain desired level of outcome or success through the
means of collaboration. For instance: Growth and success of Silicon Valley is highly influences
from both formal and information co-operation takes place between the start-up companies
perform in such area. This aspect shows that by making combine efforts firm can attain
organizational aims and objectives significantly. Along with this, collaboration takes place
between the educational institutions is also the main examples of social capital. However, Reid
and Carroll (2016) argued that it is highly difficult for the concerned authorities to achieve
success and build successful cluster through the means of social capital.
From research, Mudambi and et.al., (2017) identified that social capital theories and
aspects may be served as a sociological concept which in turn supports integration and cohesion
to a great extent. Besides this, social capital aspect may be served as a societal concept which
place high level of emphasis on well being of others. Moreover, by facilitating functioning of
labour market more effectually and efficiently firms can maximize their productivity and
profitability. In this way, by creating successful cluster of firms growth in economy and GDP
can be ensured to the significant level. The rationale behind this, economic growth as well as
business performance at both national and sub-national level is highly affected from the
availability of social capital. On the other hand, Crespo, Suire and Vicente (2016) stated that
social capital is the constraint which takes place between the action and choices of individuals.
Moreover, social capital is result into increase in hierarchical authority and structure. In this, one
individual directs and monitors the activities of others on the basis of certain aspects. This in turn
closely affects the innovative activities and practices of others. Moreover, when individual
performs act under the supervision of specific authority and guidelines provided. Due to such
aspect, employees are not in position to execute their innovative ideas and plan. Thus,
hierarchical authorities closely affect the significance of social capital and thereby impacts
creation of successful firms.
Rabellotti (2016) found in their study that social capital helps in creating bonds between
the firms. Moreover, when firms work and co-operate with each other then it may result into
mutual trust and effectual bonding. Trust is the main elements which business units require on

another before performing the activities or functions. Hence, through the means of social capital
mutual trust can be developed within the firms. In addition to this, social capital is one of the
major aspects which in turn help in removing bridges. Moreover, social capital makes focus on
collaborative culture, mobility of individuals etc. It allows business units to work together and
promote innovation significantly. Moreover, when individuals of different organizations make
their combine efforts then it may turn into unique product or service. By taking into account all
such aspects it can be stated that social capital helps in making successful cluster. However,
Mueller and Jungwirth (2016) claimed that due to the changes take place in power relation trust
and co-operation among the members affected in a negative manner. Thus, business entity
should make use of social capital by keeping in mind all the pros and cons.
As per views of Jenson and Fraser, (2015) there are number of advantages and
disadvantages of the social capital for the business firms. One of the main advantage of the social
capital is that it increase the cost of defection. Along with this, transactional cost also reduced in
the business due to sharing of information with each other. All the groups that operating in the
specific industry at different levels becomes interconnected with other. Thus, integration takes
place in the industry. However, there are some disadvantages of the social capital for the firms. It
is very difficult task to access the impact of social clusters on the firms. With increase in
business growth rate influence of entrepreneurs also increased. By using same sometimes
entrepreneurs attempt to fulfill their own interest. Hence, it can be said that there are some
limitations of social capital for the firms. Thus, on this basis it can be said that successful clusters
depends on the human being. It does not mean that there is social capital then in that case
everything will gone fine and successful clusters will be developed. Thus, it is very important
that people or firms shared values in systematic way and develop broad understanding as well as
cooperate with each other.
According to Lu, Q. and et.al., (2015) geographical locations where resources and
knowledge arte bring together by the business firms lead to generation of successful clusters in
the area. Silicon Valley and Hollywood are the one of the best examples where people and
organizations bring their resources and share intellect with each other. This lead to development
of all firms that are operating in the specific industry. This lead to generation of successful
clusters in the specific geographic area. It can be said that industry structure have direct

relationship with formation of successful clusters among the business firms. In such kind of
industry structure there are specific development strategy that are followed by the business firms
which lead to elevation in the economic activity of the cluster. Flow of new innovative ideas
takes place among the business firms and this lead to formation of successful clusters in the
geographic area.
By conducting evaluation, Saha and Sen (2016) assessed that industry structure and
clustering aspects are positively related with each other. Moreover, it increases productivity,
drives innovation and stimulates new businesses to a great level. Outcome of research shows that
when companies which are operated in the same industry share their resources such as
technology then it facilitates high level of innovation. Example of industry structure can be
found in the banking sector of London and New York. Hence, by sharing technology and other
resources firms can perform more effectively and efficiently. In this way, through sharing
resources firms can maximize productivity to the significant level. Besides this, industry
structure and clustering focuses on continual innovation. However, on the other side, Meddings
and et.al., (2017) presented that in the case of industry structure and clustering pricing war
encourages firm to forgo profit. Due to such aspect business units focus on downsizing the
operations with the motive to reduce the cost level.
By doing research, Huang and Liu (2017) identified that under industry cluster resources
and knowledge is brought together in one location. Hence, there are several business
organizations which offer benefit to the industry by performing sustainable activities in the rural
areas. Hence, Cisco, Facebook, Intel etc. are the main examples of industry structure and
clustering. In contrast to this, Mueller and Jungwirth (2016) said that in the case of industry
structure logistics delay occur to the significant level which in turn may result into diseconomies
of scale. In addition to this, skilled employees are not in position to perform activities in another
firm due to antipoaching policy. Besides this, due to having lack of skilled personnel it is not
possible for the firms to achieve success. Along with this, Saha and Sen (2016) depicted that
industry structure and clustering also facilitates and ensures increasing return to scale. Moreover,
industry structure helps in enhancing the flow of new and innovative ideas. Thus, by offering
highly unique products or services firm can build distinct image in the mind of customers.
Hence, by attracting large number of customers and building customer loyalty firm can generate

high return. Thus, it can be presented that industry structure helps in making or building
successful cluster to a great extent.
As per views of Dodgson and et.al., (2011) it can be observed that industry structure have
impact on formation of cluster and sometimes nation have to pay cost for it. In many areas
manufacturing related firm consistently open their business. It is the sharing of common values
and understanding due to which firms grow at rapid pace in the specific domain. Gradually
number of manufacturing firms increase in specific geographic area and this lead to increase in
pollution in same. Due to this reason many new disease comes in existence and pollution
increase. Moreover, congestion increase which lead to destruction of aesthetic beauty. Hence,
there are also negative impact of industry structure and clusters on the firms.
Government is the one of the important entity that plays a significant role in growth of
any business firm. Government support clusters in number of ways like it take many steps to
attract FDI in the specific cluster. It take varied steps to attract foreign talent towards the
domestic business firms. In this regard relaxations are given in the Visa and other documents.
This promote foreign people to enter in the nation and work for the domestic business firms.
Government also enter in to contract with other nations of the world in order to promote business
in the nation. Under this steps are taken to promote firms to enter in to strategic alliance with
each other. In this regard complicated rules and regulations are removed by the nations. Thus, it
can be said that formation of successful clusters also depend on the government policy.
By doing research or investigation, Huang and Liu (2017) assessed that policies which
are framed and introduced by the government authority also helps in creating successful cluster.
Moreover, government authority takes decision by keeping each and every aspect in mind.
Usually, government takes decision which is optimal for society. Moreover, high level of
economic growth and development is one of the main objectives of government authority.
However, it is to be critically evaluated by Crespo, Suire and Vicente (2016) who said that
sometimes government authority frames and introduces policies which in turn offers high level
of benefits to specific industry. Such aspect closely influences the growth and success of other
firms. Further, Meddings and et.al., (2017) entailed that government authority frames policy in
such a manner which in turn encourages firm to come up with innovative ideas. Hence,
government authority plays a vital role in building groups termed as competitive clusters. For

instance: French National Industrial policy provides high level of assistance to making business
clusters and aid in the growth or success of firm. The reason behind this, competitive clusters
made by government authority helps in brining large and small sized firms together. Along with
this, government policies also lay high level of emphasis on the partnership of research
laboratories and educational institutions. In addition to this, competitive clusters enable and
encourage firm to develop innovative and collaborative projects. By this, firm would become
able to attain leading position in both home and host country.
Research report presented by Saha and Sen (2016) shows that government cluster
activity leads economic growth and development to the full extent. Moreover, government
authority takes several initiatives for reducing and eliminating undesirable activities from
operations. With the motive to exert control on undesirable business aspects or activities
government frames several laws and legislation for developing healthy competition in the
market. It shows that government policy helps in making effectual clusters. On the other side,
Mueller and Jungwirth (2016) claimed that effectiveness of clusters is highly influenced from the
kind of policies made by government. For example: State government of California has state
government has taken decision in relation to banning non-compete laws pertaining to
employment contract.
Besides this, Rabellotti (2016) mentioned in their findings that in developing countries
national institutions which regulate workplace is not highly sound or strong. In addition to this,
jobs which are offered by the clusters to personnel are not highly good. All the above mentioned
aspects clearly show that government policies have both positive and negative aspects. Hence,
for the creation of successful cluster it is highly required for the government to develop suitable
policy framework by keeping each and every aspect in mind. Thus, by focusing on all such
aspects government would become able to create highly effective and successful cluster.
According to the views of Crespo, Suire and Vicente (2016) clusters are formed with the
motive to meet several aspects such as innovation, competition and cooperation, geographical
concentration, specialization, critical mass etc By taking into consideration all such aspects
effective and successful cluster can be formed. Mudambi and et.al., (2017) defined
entrepreneurial culture as the one which is highly associated with grabbing economic
opportunity. On the basis of such aspect new start-ups and institutions respond economic

opportunities and perform activities by following specific norms as well as behaviour. In
addition to this, Reid and Carroll (2016) stated that creative and cultural industries (CCI) are the
one that place high level of emphasis on providing customers with the innovative products or
services. The main aims of CCI are to encourage and build cooperation between creative
stakeholders and partners. Moreover, to make contribute in the innovation of others sector
cooperation between creative enterprises, people, universities as well as R & D bodies are
highly required.
Chen, Haga and Fong (2016) presented that there are several ways through which
creative culture can be built within the organization. Hence, by offering incentives firms can be
encouraged to present their unique ideas and convert them into reality. However, Giudici,
Guerini And Rossi-Lamastra (2017) argued that having unique ideas are not sufficient.
Moreover, without having proper competency it is not possible for the individuals to execute
their innovative ideas or personnel. Thus, by conducting training session and creating such type
of culture within the firm business entity can enhance the proficiency level of personnel. Thus,
by taking continuous feedback from individuals firm can assess training requirements and
thereby would become able to take significant action or measure within the suitable time frame.
Further, de Lange (2016) evaluated that by developing team culture firms can attain success to a
great extent. Moreover, when individuals work in a team then they always ready to take risk and
encouraged to make their best efforts while performing activities. Besides this, people have
varied competency level regarding different fields or area. Thus, by assigning roles and
responsibilities to individuals firm can meet goals within the suitable time frame. It can be stated
from overall analysis that by delegating the roles and responsibilities among the individuals
business units can attain objectives within the stipulated time period.

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